Right investment climate can help stem decline

Posted: Tuesday, March 08, 2011

The biggest obstacle facing Gov. Sean Parnell's proposal to ease state petroleum taxes to encourage new development is legislators' uncertainty whether the change will result in substantial new investment. Will it be enough to flatten the decline in oil production moving through the Trans-Alaska Pipeline System?

However, an independent company exploring the North Slope is bullish that the tax change would stimulate new exploration and that enough new discoveries can be made, even outside the existing fields, to keep enough oil in the pipeline.

Bart Armfield, operations vice president for Brooks Range Petroleum Co., says Alaskans shouldn't discount the ability of the industry and particularly small explorers to rise to the challenge.

Things aren't good right now, though. Brooks Range is the only company drilling a North Slope exploration well this winter, but the company is having trouble attracting new investors because investors are finding oil investments elsewhere are more profitable.

Armfield spoke at the Alaska Support Industry Alliance Feb. 24.

Alaska's high tax rate on oil isn't the only problem. There are also high costs, lack of infrastructure and distances to market. Passage of the governor's tax proposal would help, Armfield said.

If it were to happen, Armfield believes it is possible for exploration companies like Brooks Range to discover and develop 10 new oil projects, each producing 12,000 barrels per day over the next 10 years. It's enough to make a serious dent in the decline of the producing fields and it is on top of any new oil that can be developed in the existing fields, such as new viscous or heavy oil production.

The effort would require about $6.3 billion in new capital investment in exploration, but if the right investment climate is in place this money can be raised because the prospects are there, Armfield said.

"I'm confident we can do this because we've already done it," Armfield said. "Look at our track record over the last 10 years. We developed Alpine, Northstar, Oooguruk and Nikaitchuq and we restarted Badami. These don't total 10, but the amount of oil is about the same," Armfield said.

There are a large number of prospects for smaller discoveries in the central North Slope area that could be in the 10,000 barrel-per-day range.

Another reason Armfield is confident is because of the rapid advance of technology in the industry in developing prospects that would have been uneconomic just a few years ago.

Pioneer Natural Resources and Eni Petroleum are using horizontal drilling technologies adapted from shale oil drilling in the Lower 48 to develop and extract oil from low-quality reservoirs.

A new company, Great Bear Petroleum, plans to test a concept of drilling and producing oil directly from the source rocks that were the origin of the oil that seeped out and accumulated over time in the large reservoirs like Prudhoe Bay and Kuparuk. Given the right incentives and with new ideas the industry is quite capable of making discoveries at a fast enough rate, even beyond 10 years, Armfield said.

However, getting the right investment climate may be a challenge. Armfield said Brooks Range is already having trouble raising funds because investments in other places, like the oil shale prospects in North Dakota and the North Sea, appear to be more attractive than the North Slope right now.

When one of Brooks Range's owners, Canadian independent Bow Valley, was acquired by Dana Petroleum, Dana told the other partners in Brooks Range that it wasn't interested in Alaska, and that the North Sea offered better returns.

Since then the Brooks Range partners have been trying to bring in another investor to take Bow Valley's position and they are having a tough time.

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